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How Low Can Gold Go on a Correction?
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Gold is in the second phase of a Bump-and-Run Reversal Top pattern, which typically occurs when excessive speculation drives prices up steeply, and is now at a critical juncture where substantially lower prices could be realized. Let me explain.
According to Thomas Bulkowski, the Bump-and-Run Reversal Top pattern (read here for details) consists of three main phases:
- A lead-in phase in which a lead-in trend line connecting the lows has a slope angle of about 30 degrees. Prices move in an orderly manner and the range of price oscillation defines the lead-in height between the lead-in trend line and the warning line which is parallel to the lead-in trend line.
- A bump phase where, after prices cross above the warning line, excessive speculation kicks in and the bump phase starts with fast rising prices following a sharp trend line slope with 45 degrees or more until prices reach a bump height with at least twice the lead-in height. Once the second parallel line gets crossed over, it serves as a sell line.
- A run phase in which prices break support from the lead-in trend line in a downhill run.
As the chart above shows the price of gold has breached the sell line at $1,830 so we can expect to see a correction with downside price targets for support as follows:
- $1,750 for support from the dotted pink line.
- $1,650 for support from the warning line.
- $1,500 for support from the lead-in trend line.
Dr. Nu Yu
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Dr. Nu Yu is managing partner and co-founder of Numarkan Investments and an affiliate of the Market Technicians Association. He publishes a Market Weekly Update on gold, silver, the U.S. dollar, the U.S. Treasury bond, and the S&P 500 which can be accessed here . A version of the above article has been posted on Dr. Yu’s site and that of his editor, Lorimer Wilson (www.munKNEE.com and www.FinancialArticleSummariesToday.com). Dr. Yu can be contacted at editor@munknee.com.
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